3. There are two firms in a town, A and B. Both of them use capital (machine) k and labor I to produce outputs. Firm A is a toy manufacturer with the production function q = fA(k, l) = VKVi. Firm B is a textile manufacturer with production function y = fB(k, l) = VK+ Vi. q and y denote the quantity of toys and textiles, respectively. The output markets of toys and textiles are independent. q and y are given exogenously to these firms. Let v denote the unit price of capital and w denote the unit price of labor. Both firms are cost-minimizing. a. What are the elasticity of substitution of firm A and firm B, A and OB? b. The government launches an industrial policy that supports workplace automation. The policy gives subsidies to firms for using machines. As a result, the relative price of labor to capital increases by 20%. Without specifying particular values of v, w, q and y, can you predict how willthe capital-labor ratio (is/l) change in the two rms? That is, report the percentage change of k/Z after raising w/v by 20%. c. Let the input prices be m : 5 and 'v : 5. Fix the output levels at q : 10 and y : 10. Compute the (contingent) capital and labor demands of the two rms. (1. Continue with part (b) and (c). Continue to X q : 10 and y : 10. The workplace automation policy $1 subsidy for using machines, so the new input prices are U} : 5 and 1) : 4. Compute the (contingent) capital and labor demands of the two rms. e. Based on your results above, discuss the impacts of the workplace automation policy. You can choose two aspects below for discussion. (i) Does the policy hurts workers? (ii) How the policy affect the two industries differently? Why? (iii) Is the policy likely to increase inequality of the society? (iv) Can you think about any reason that the government should promote the policy? (v) Other impacts you can think of